Stocks, euro advance on EU deal, China report

A trader looks at screens at Madrid's bourse December 7, 2011.

NEW YORK (Reuters) - Global stocks rebounded and the euro rose on Friday after nearly all European Union leaders agreed to build a closer fiscal union to address the region's debilitating debt crisis.

A Reuters report that China planned a new $300 billion vehicle to invest in Europe and the United States also buoyed investor sentiment.

Yields on Italian debt also were trading below the 7 percent threshold, which was seen as unsustainably high. However, traders said frequent European Central Bank purchases offset disappointment over the prospect for a quick end to the crisis.

Led by Germany and France, 26 of the 27 nations in the European Union agreed after a two-day summit to pursue tighter integration with stricter budget discipline in the euro zone. Britain said it could not accept the proposed EU treaty amendments.

European and U.S. shares surged more than 1 percent, recouping most of Thursday's losses as investors saw merit in the EU deal.

"Some were hoping for a bigger deal, but we're seeing a lot more meat behind the effort with these measures," said Dennis Wassung, portfolio manager at Cabot Money Management in Salem, Massachusetts.

But some analysts warned that EU leaders failed to deliver a convincing answer to investors worried about their ability to tackle growing debt crises in Italy and Spain.

Italian bonds rebounded, and yields on the 10-year bond fell. Yields were off 15 points to 6.38 percent, with traders citing frequent European Central Bank purchases that offset market disappointment at the lack of prospects for a quick end to the debt crisis.

The euro also reversed course, gaining 0.2 percent to $1.3372. The single currency hit a global session high of $1.3433 on news of the Reuters report about China's planned investment vehicle.

Still, concerns remained that implementation of tougher budgetary discipline is going to be difficult.

"While many promises were made to stick to the rules of keeping debt at manageable levels, there were no tools offered that would supply an immediate and tangible benefit to the area," said Brendan McGrath, senior analyst at Western Union Business Solutions in Victoria, British Columbia.

The FTSEurofirst 300 .FTEU3 index of top European shares rose 1.3 percent to close at 985.81 points.

The Dow Jones industrial average .DJI closed up 186.56 points, or 1.55 percent, at 12,184.26. The Standard & Poor's 500 Index .SPX was up 20.84 points, or 1.69 percent, at 1,255.19. The Nasdaq Composite Index .IXIC was up 50.47 points, or 1.94 percent, at 2,646.85.

Banks, which have been pressured by the uncertainty of the debt crisis, rallied. The Financial Select Sector SPDR in New York rose 2.2 percent to $13.10, while the STOXX Europe 600 Banking Index .SX7P rose 2.6 percent to 135.18.

A rise in U.S. consumer sentiment also drove gains on Wall Street. Consumer sentiment in early December hit its highest level in six months on signs of better labor conditions and an improving economic outlook, according to a survey by Thomson Reuters/University of Michigan.

The U.S. trade deficit narrowed in October to its lowest in 10 months, but imports from China hit a record high, a government report showed.

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Euro zone graphics package r.reuters.com/hyb65p

Interactive timeline: link.reuters.com/rev89r

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U.S. Treasury debt prices stumbled on the Wall Street rally and as traders reduced bond holdings in advance of next week's $78 billion in coupon debt supply.

Benchmark U.S. 10-year Treasury notes fell 27/32 in price to yield 2.07 percent.

Oil prices rallied after a choppy start.

ICE Brent futures rose 51 cents to settle at $108.81 per barrel. U.S. crude futures rose $1.07 to settle at $99.41.

U.S. gold futures for February delivery settled up $3.40 at $1,716.80 an ounce.

(Reporting by Frank Tang, Julie Haviv, Ellen Freilich and Ryan Vlastelica and Robert Gibbons in New York; Writing by Herbert Lash; Editing by Kenneth Barry)